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Measuring MPC heterogeneity in China: Insights from household registration reform

Author

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  • Gao, Yawen
  • Li, Lun
  • Liang, Xin

Abstract

Understanding the marginal propensity to consume (MPC), its heterogeneity among different population groups, and the influence of policy shocks on MPC is crucial for policymakers. This paper addresses these three questions using two datasets: the China Family Panel Studies (CFPS) and the China Household Finance Survey (CHFS). Extending the Euler equation method of Baker (2018), we estimate the MPC for urban residents in China, finding it ranges between 0.130 and 0.144. A comprehensive heterogeneity analysis shows that individuals with lower wealth, married status, poor health, high education, children, non-migrant status, or homeownership tend to have higher MPCs. Using the 2014 Hukou reform as a policy shock, we estimate its impact on the MPC using CHFS. Results from a difference-in-differences analysis reveal that the reform significantly increased the MPC among urban residents. We show that the influx of migrants following the Hukou reform raised urban housing prices, which increased homeowners' debt levels through wealth effects and reduced their liquid assets, ultimately raising their marginal propensity to consume.

Suggested Citation

  • Gao, Yawen & Li, Lun & Liang, Xin, 2025. "Measuring MPC heterogeneity in China: Insights from household registration reform," China Economic Review, Elsevier, vol. 94(PC).
    • Handle: RePEc:eee:chieco:v:94:y:2025:i:pc:s1043951x25002408
    DOI: 10.1016/j.chieco.2025.102582
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    References listed on IDEAS

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    1. Spector, Mariano, 2024. "Redistributive fiscal policy and marginal propensities to consume," Journal of Economic Theory, Elsevier, vol. 218(C).
    2. Scott R. Baker, 2018. "Debt and the Response to Household Income Shocks: Validation and Application of Linked Financial Account Data," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1504-1557.
    3. Carlos Garriga & Aaron Hedlund & Yang Tang & Ping Wang, 2023. "Rural-Urban Migration, Structural Transformation, and Housing Markets in China," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 413-440, April.
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    5. Miguel Ampudia & Russell Cooper & Julia Le Blanc & Guozhong Zhu, 2024. "MPC Heterogeneity and the Dynamic Response of Consumption to Monetary Policy," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(3), pages 343-388, July.
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    More about this item

    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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